By Helen Reid, Julien Ponthus, Philip Blenkinsop and Shreyashi Sanyal
European stocks failed to stage a recovery yesterday, posting their worst week since a market correction last February as a new sell-off hit bourses across the globe, amid worries about protectionism and fast-rising US interest rates.
Eurozone stocks initially jumped 1% but rapidly shed all of their gains despite Wall Street opening higher.
All major bourses closed in negative territory and the main regional index the Stoxxe ended the day down 0.2% and on a weekly loss of 4.8%.
That figure is just below the 5.1% fallback experienced last February when a sudden scare about rising inflation and interest rates caused a global market correction.
There’s “a rotten trend” in Europe, a trader complained, noting that US shares have outperformed their European peers since the beginning of the year with the Trump administration’s fiscal cuts boosting earnings.
Europe lags far behind the United States in terms of earnings growth, and stronger results will be critical in luring back some of the billions that have been pulled out of European stocks this year.
Third-quarter results are beginning to trickle in from European firms as Wall Street banks formally kicked off the earnings season.
Tech stocks were the worst hit by this week’s sudden drop.
However, they made a modest comeback and climbed 0.5%, along with the growth-sensitive car sector. Brussels could prove the centre of global market focus next week as Italy’s budget and Brexit talks overshadow economic data and central banks.
One risk is an impending dispute between Italy’s eurosceptic government and the EU over Rome’s 2019 budget plans, which could lead the EU executive to the unprecedented move of rejecting it.
Eurozone countries, including Italy, have until Monday to submit their draft budgetary plans to the European Commission, which would have to warn Rome within a week if it planned to trigger the rejection process. The populist Italian government plans a deficit of 2.4% of GDP next year, triple the previous administration’s target, prompting investors to sell Italian bonds and pushing the country’s borrowing costs to a five-year high at a bond auction.
Meanwhile, Wall Street climbed more than 1% early yesterday following its worst two-day slide in eight months, with technology and other high-growth stocks leading a fight back.
Ten of the 11 major S&P sectors were higher, led by the technology sector’s 3.11% jump, with Microsoft and Apple gaining 3%.
JPMorgan Chase & Co and Wells Fargo reversed earlier gains to tread lower after their quarterly results, while Citigroup was up 1% as its profit topped estimates.
The bank results launch a quarterly reporting season that will give the clearest picture yet of the impact on profits from President Trump’s trade war with China.
“The market is going to focus on not just current quarter earnings, but guidance going forward, particularly as it relates to the profit margins. You’ve got some indications of rising wage pressure and higher interest rates,” said one analyst.
“The underperformance from banks and financial sector even as rates have moved higher has been a bit of a warning sign for the market overall.”